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Is Hartford Selling Out its Homeowners?

Homeowners are up in arms after they claim Hartford sold property tax liens against their homes without their knowledge. They say the private companies who bought the liens then waited for interest and fees to accrue before threatening foreclosure. The Troubleshooters asked city and company officials for an explanation. (Published Friday, July 5, 2013)

For nearly 40 years, Butch Lewis has strolled the streets of northeast Hartford.

“I’ve been living on Vine Street for 37 years,” said Lewis. “Same house. Identical. My kids were raised in that house.”

Lewis didn’t leave when the drug dealers tried taking over. Instead of turning away, Lewis started a neighborhood watch and helped turn this community around.

“We fought back, run drug people out, and it’s quality of life,” he said.

But a few months ago, Lewis got the shock of his life when he was served with foreclosure papers on the Vine Street home he’d already paid off.

“This guy walks in the driveway and says, ‘We have a lien against your house. We’re going to take it,’” recalled Lewis.

Turns out he was caught in a business transaction between Hartford and tax lien purchaser American Tax Funding, or ATF.

It’s a common practice across the country: municipalities sell property tax liens to private companies. The companies take over the lien and by law can charge up to 18 percent interest on the back taxes –and foreclose if they don't get paid. It's a tried and true way for towns and cities to collect on delinquent taxes. But critics like City Councilman Larry Deutsch (Working Families Party) believe it shouldn't be happening.

“We have to stop this practice,” said Deutsch.

He explained that once the lien is sold, it is taken off of the city’s books. Lewis said he never knew he owed the city of Hartford $500 back in 2006, and didn’t even realize the lien was sold off.

“We thought we were up to date. If you check our records and it says your taxes have been paid, you do not owe the City of Hartford [anything],” said Lewis.

Lewis insisted that ATF only came calling after a $500 debt had skyrocketed over half a dozen years with interest and fees.

“It ended up being $13,000," Lewis said. "Yeah, at 18 percent."

“It’s in the interest of the company to be very quiet and then after two, three, four, five years of 18 percent accumulating, then they’ll let someone know,” argued Councilman Deutsch.

In fact, a March report by Hartford’s Tax Lien Task Force found:

“…the majority of the concerns of taxpayers that have been brought to the attention of the City Council and the Mayor’s Office have centered on claims that the taxpayers have not received notice from the lien-buyers…”

Attorney William Breetz served on the Task Force. He said former city leaders were known to abuse the system.

"I think it's fair to say there were cases where they were sold to political friends for less than full value,” he said.

But Breetz cautioned that’s not the case anymore, and he believes current city government is trying to do the right thing. That includes limiting the sale of new or small-value liens.

“I don’t think you’ll find the City selling liens that are six months old anymore,” Breetz said.

The Task Force recommended Hartford send out more notices before selling liens, and that the city require companies like ATF to do the same.

“How many notices did you require the outside company to send prior to those changes?” our reporter asked Hartford Tax Collector Marc Nelson.

“Previously, it was one,” answered Nelson.

Nelson said his office sends multiple notices and does everything it can to reach taxpayers before selling a lien. He plans to demand companies send additional notices before foreclosing.

The Troubleshooters reached out to ATF about Lewis’s claims. Without discussing specifics, the company said it followed its normal practices. In a statement, company CEO Matt Marini told us:

Confirming our earlier conversation, American Tax Funding, LLC (“ATF”) or its predecessors have been acquiring and servicing tax liens in Connecticut since 1997.

Marini also said that throughout this period our practices relative to tax lien administration, foreclosure and property owner notifications have remain unchanged. It is important to note that although not required by statue nor in most cases by contract the practices we utilize include the following:

Although not required by statute we customarily provide property owners that we have acquired their tax liens with an ‘Introductory Letter’ which advises them how to contact us to arrange for payment or to advise us of any disputes relative to the tax obligation.

Connecticut statutes permit us to initiate foreclosure immediately. Despite being able to initiate foreclosure immediately it is our practice to generally wait two years before considering such action unless there are other concerns related to the underlying property.

Although not required by statute throughout our ownership of these liens ATF has always maintained a policy of providing property owners a “Courtesy Notice”, reminding them of the tax obligation and encouraging them to contact us to make arrangements to pay and suggesting they enter into a payment plan. Such notices are typically sent twice annually.

Although not required by statute at some future time if the property owner still has not responded to our correspondence we then provide them with a pre-foreclosure notice usually within 60 days before we forward it to our counsel. In that notice we again encourage to contact us to make arrangements to pay us including on get on a payment plan.

Again, though not required by the statutes prior to initiating any foreclosure we contact the Hartford Tax Collectors office and advise them of our intent to foreclose and seek confirmation that he lien is in fact valid. This avoids incurring unnecessary legal fees and distress to the property owner.

Although not required by statute Prior to initiating a foreclosure we have an unaffiliated outside law firm send the property owner a ” 30 day Demand notice” that foreclosure is imminent and again encouraging the property owner to contact either ATF or the Law Firm to arrange to make payment.

Finally note, Tax Lien Investors, including ATF, are required by statute to use a judicial foreclosure where a judge oversees the entire process to protect the property owner. In short, once it goes to foreclosure the process is prescribed by law. But even through this process ATF looks to work co-operatively with the property owner.

It is also important to underscore that ATF does not profit from foreclosure activities. In fact foreclosures reduce our profitability. Further, the majority of Connecticut foreclosures result in properties being sold at a Committee Sale with any amount being recovered in excess of our claims going to the other lien/mortgage holders or the property owner.

As a result, ATF does not profit from the real property disposition. In fact, if the property is not sold at the Committee Sale and the property eschews to ATF we normally lose money on the disposition.

Overall, foreclosure is our final option on these properties and historically the vast majority of all the tax liens we acquire have paid prior to ever having to threaten foreclosure. ATF is pleased in that far more property owners make payments under payment plan arrangements and ultimately only a small fraction go through the final stages of foreclosure.

It should also be noted that the entire time permitted for a property owner to pay their tax liens under ATF, between when we acquire the initial lien and complete a foreclosure, is typically five or more years. This allows the property owner ample time to make arrangements for payment or to sell the property.

If we do a foreclosure the legal fees our legal counsel charges are typically between $3,000 and $5,000. Even though most of the legal fees we expend are recoverable against the property ATF uses multiple law firms in Connecticut to provide competition between the firms to keep prices competitive . The fees charged by the Appraisal Committee in a Committee Sale normally significantly exceed our legal costs."

Deutsch said hundreds of City homeowners currently face foreclosure because of outstanding liens. Just last week, the City Council voted to approve the sale of another $4 million in tax liens. Hartford will make a profit of $100,000 from the sale, but this time, officials said there are more safeguards for homeowners built into its contracts with the companies.

“We’re all in this together. It’s something that we take very seriously. We don’t want to see anybody lose their home,” said Nelson.

In the meantime, Lewis isn’t going anywhere. He worked out an agreement with ATF to pay $10,000 by refinancing his home.

“We are fortunate that we can do that, but what about the other people in this city?” asked Lewis.